Claimants Given Choice Of Remedies In Construction Defect Cases

Construction Law E-Alert (August 2013)

In Liberty Mutual Insurance Company v. Brookfield Crystal Cove, LLC (Aug. 28, 2013, No. G046731) __ Cal.App.4th __ [2013 WL 4538693], the Court concluded that the "Right to Repair Act" was intended as an additional, non-exclusive statutory remedy, allowing recovery for construction defects that have resulted in economic losses only.  Until this decision, the Right to Repair Act was commonly viewed as providing the sole remedy for residential construction defect claims.  By way of background, the case arose over a plumbing defect that caused property damage.  In 2004, Eric Hart ("Hart") purchased a newly constructed home from Brookfield Crystal Cove, LLC ("Brookfield").  In 2008, a fire sprinkler pipe burst causing property damage to the home.  Under the Act, Brookfield acknowledged liability, repaired the pipe and the resultant damage.  Brookfield, however, refused to pay Hart's relocation expenses during the repairs.  Hart's insurer, Liberty Mutual Insurance Company ("Liberty Mutual"), paid Hart's relocation expenses, and in 2011, Liberty Mutual sued Brookfield, in subrogation, to recover those expenses.  Brookfield demurred, contending Liberty Mutual's claim was time-barred under the four-year statute of limitations for plumbing defects provided under the Act.  The trial court sustained Brookfield's demurrer.  The Court of Appeal reversed.  In reversing the trial court, the Court of Appeal analyzed the legislative history of the Right to Repair Act and concluded that the legislature intended to provide plaintiffs with additional remedies specifically to address claims in which  construction defects resulted in economic damages only.  The appellate court reasoned that the legislature did not intend to bar common law claims for actual property damage; to do so would be "nonsensical."  In effect, the Court rejected the notion that the Act provides an exclusive remedy for all types of construction defect claims.    As a result, the appellate court held the Act's four-year statute of limitations for plumbing defects did not apply to Liberty Mutual's claim because its claim was governed by the  four-year and ten-year statutes of limitations (for patent and latent defects, respectively) governing common law tort claims.  In reaching its decision, the Court of Appeal appears to have been motivated by a desire to address perceived harshness resulting from the application of the Act in the specific context of a subrogation plaintiff.  The Court concluded that to require a claimant to satisfy the detailed and "lengthy" procedures and deadlines provided by the Act in a "case of an actual catastrophic loss" would be "unnecessary and nonsensical."  Unfortunately, in its apparent effort to address fairness concerns in the subrogation context, the appellate court appears to have fundamentally altered the scope of application of the Act in a manner contrary to original legislative intent.  Although the Right to Repair Act has never been the panacea the building industry had hoped, this decision further erodes the limited utility afforded to builders by the Act.   Assuming the case is not de-published or reversed by the California Supreme Court, it is highly likely future construction defect lawsuits will include allegations of both Right to Repair Act and common law claims.  Plaintiffs will likely pursue this approach in an effort to overcome challenges based upon the procedural requirements and shorter limitations periods provided by the Act. By Stephen F. Tee, Stephen A. Sunseri, and Aarti Kewalramani for Gatzke Dillon & Ballance LLP